Developmental Impact of Lesotho-Sino Relations

The Kingdom of Lesotho enjoys cordial bilateral relations with the People’s Republic of China (China) dating back to 1983 following the former Prime Minister Leabua Jonathan’s diplomatic visit to China. This was the first significant diplomatic exchange between the two nations. Barring cessation of the relationship in the years 1990 through to 1993 when Lesotho re-established diplomatic relations with the Republic of China (Taiwan). Lesotho-China relations have largely improved over the years following their restoration by the Basutoland Congress Party in January 1994. This apparent improvement in the Lesotho-China relationship owes credence to Lesotho’s adoption and adherence to the ‘One-China Policy’[1], acknowledging China instead of Taiwan. Today, Lesotho hosts a Chinese Embassy in Maseru among a few other diplomatic missions resident in the country.

Economic relations are primarily driven by China’s direct investments in Lesotho’s overall garment industry. Following years of the industry’s development pioneered by Taiwanese nationals in the 1970s and 1980s, today Lesotho’s garment factories are almost all owned by Taiwanese and Chinese. Chinese ownership patterns are barely the result of official interactions and commitments between Beijing and Maseru, but rather reflect private citizens’ firm relocation decisions to move assembly operations to Lesotho. This allows Chinese firms to gain tariff-free market access to the United States because Lesotho is a beneficiary of the African Growth and Opportunities Act (AGOA).

Lesotho has become one of sub-Saharan Africa’s largest garment exporters to the US due to its AGOA access, recording an estimated USD 308.6 million[2] in 2017 from its total goods exported to the US. Lesotho also enjoys duty-free access for its exports to the Southern African Customs Union and Southern African Development Community member countries. This has also been exploited by Chinese companies to gain market-access for their manufacturing operations based in Lesotho.

The growth of Lesotho’s garment industry has encouraged manufacturing diversification in the country and now includes other labour-intensive products such as that of electronics and automotive components. The Lesotho National Development Corporation (LNDC) recognises electronics and automotive parts as amongst the best prospects in its manufacturing sub-sectors[3]. LNDC is the government of Lesotho’s primary agency providing serviced industrial and commercial workspace to support the country’s industrial development programme.

Lesotho’s total exports to China remain negligibly low as a share of total exports, at an average of 0.4% from 2011 to 2016, which remained the same at 0.4% in 2017[4]. Categorised by sector, Lesotho’s manufactured exports to China also remain very low.

Source: UNCTAD 2018, UNCTADStat Database.

From 2011 to 2016, Lesotho manufactured goods exports averaged 0.32% of total export to China, which slightly decreased to 0.31% in 2017[5]. The manufactured goods include clothing garments. Meanwhile machinery and transport equipment exports from Lesotho to China averaged -0.1% of total goods exported to China from 2011 to 2016, with no observable change in 2017[6]. These export numbers fail to prove any success in China’s duty-free trade allowance extended to Lesotho on 95% of all its export. The duty-free access for Lesotho started in 2013 after the Chinese government’s announcement earlier that year[7].

While trade between the two nations remains low, the Chinese have significantly contributed to the Lesotho’s infrastructure development. China has wholly-funded the construction of prominent buildings such as the Parliament building in Maseru, the National Convention Centre, State Library and Archive, and the State House among others[8]. In its recent development assistance efforts, China has pledged a further LSL 400 million (approx. USD 30 million) grant towards the building of the Maseru Hospital and Eye Clinic[9]. This follows the initial LSL 400 million (approx. USD 30 million) pledged following resolutions of the 2015 Forum on China Africa Cooperation (FOCAC) summit held in South Africa. The hospital is expected to benefit at least 400 000 people from Maseru and surrounding districts.

China will also fund construction of the 92 kilometres road from Ha Mpiti to Sehlabathebe in Qacha’s Nek district, from a concessional loan agreement signed between Lesotho and the Export-Import (EXIM) Bank of China[10]. Thirty percent of the estimated LSL 1.3 billion (approx. USD 98 million) road construction project is expected to be earmarked for local construction companies following Lesotho’s successful negotiations on the deal. The Qacha’s Nek road construction project will therefore contribute to upgrading Lesotho’s road infrastructure, connect the country’s highland and lowland areas, job creation, local procurement and facilitate skills transfer to the Basotho.

Lesotho’s trade relations to China are unlikely to show rapid increment into the foreseeable future. Despite overall relations strengthening on the back of China’s increasing foreign-aid to Lesotho, little evidence exists to suggest China’s continued reliance on Lesotho imports. The success of the existing tariff-free benefit extended by China to Lesotho for its exports in the past five years has also not yielded expected impact on the various export categories for which it applies. Lesotho’s winning prospects in this relationship are then likely to increase from aid-agreements signed by Lesotho’s government to include local Basotho in job opportunities and local procurement with the aim of skills transfers.